Daily Independent (Lagos)
Sola Alabadan
7 January 2009
While it is truism that the contributory pension scheme, which had been in operation for more than four years, has recorded tremendous success, there are still a number of problems and challenges facing the scheme.
As at the end of August 2008, total pensions funds was N970 billion while contributory pension scheme established by the Pension Reform Act 2004 for employers in the country recorded 3.349 million contributors as at September 30, 2008.
Challenges Facing Pension Scheme
The challenges facing the pension scheme in Nigeria can be categorised into regulation, compliance and service delivery.
In the area of regulation, there is the charge of strict if not over-regulation. The Pension Fund Administrators (PFAs) claimed they are being denied the opportunity to be innovative and competitive, as everybody is pursuing the same sort of investment.
Some of the challenges faced by pension operators include the bureaucratic bottlenecks before an operator could invest pension funds abroad. For a PFA to invest abroad, it requires presidential approval. This is in spite of the lucrative business opportunities in the international market. Pursuing the presidential approval will be cumbersome and is, therefore, ill advised.
To ensure compliance, the regulatory body in the industry, National Pension Commission (PenCom) should come out with and implement a comprehensive public awareness programme that would help to bring about greater knowledge and understanding of the difference between the current pension reform and the past scheme.
Lack Of Commitment By Private Sector Employers
The level of dishonesty and lack of commitment, particularly on the part of private sector employers, who are found of deducting their employees' salaries for pension purposes without remitting the money to the pension managers, is also a problem. It must be appreciated that with this negative trend in the private sector, the desired changes, which informed the reform of the country's pension system, may not be achieved.
Investigations have revealed that virtually all of these private companies are as guilty as charged. An employer would deduct money from his employees' salary and at the end of the day he would not remit it.
PenCom should, therefore, monitor the operators in the private sector closely so that they could comply with the provisions of the law accordingly.
Apart from this closer monitoring of private sector operators by the pension regulatory body, there is need for the commitment of both workers and their industrial unions to ensure that the desired results are achieved.
PenCom Should Collaborate With Other Regulatory Agencies
PenCom should continue collaborating with other regulatory bodies whose activities are relevant to its operations. This is because the success or failure of the contributory pension scheme currently in operation in the country would depend on how long the PenCom can continue to collaborate with other regulatory bodies.
PenCom had said it has been collaborating with some supervisory and regulatory authorities in the country to enhance the penetration of the new contributory pension scheme established by the Pension Act.
PenCom said it was working with the Central Bank of Nigeria (CBN), the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE) as well as many others to ensure that every organisation that they are regulating have effectively carried out their responsibility of registering with a Pension Fund Administrator (PFA).
It is envisaged that such collaborations would ensure the success of the ongoing pension reforms in the country.
It is needless to stress here that partnering with other regulatory agencies and bodies would fast track the spread of the new pension scheme since such bodies can directly influence their industry to embrace the scheme.
PenCom Should Give Consideration To Needy Sectors Of The Economy
The pension industry regulator should also give due consideration to investment in real estate. The appeal for investment in real estate becomes inevitable because investigations revealed that the disposition of most banks in the country to providing only short and medium-term loan facilities as well as the negative effect of the crippling high interest rates affected investments in most long-term instruments, including the real estate.
It may, therefore, not be out of place to review the guidelines on the investment of pension fund assets. PenCom may have to make it mandatory for the pension operators to invest s certain percentage of the funds under their control in the real estate sector to ensure its growth and development.
It is disheartening that the country's manufacturing sector had remained in comatose due to high interest rates, lack of long-term funds, necessary incentives as well as poor infrastructure.
As the engine of growth of any economy, the real sector would experience real industrialisation if the huge sums of money available in the nation's pension market would be made available for the sector at very low interest rate to facilitate acquisition of state-of-the-art production facilities.
Having witnessed how pension schemes were mismanaged in the past, one cannot wish for a repeat of such scenario. While giving favourable consideration to the needy sectors of the economy PenCom should also ensure the safety of the pension fund assets. All hands must be on the deck to make sure that pension funds are judiciously invested to make it beneficial to the economy generally.
PenCom Should Publicise Group Life Insurance
The commission should embark of more awareness campaign so that employers can appreciate the need to arrange group life insurance for their employees as provided for in the Pension Act.
As the Pension Act makes it mandatory for all employers affected by the law to arrange group life insurance for their employees, PenCom should publicise the need for affected companies to comply.
There is need for more awareness campaign on the part of the commission to ensure that the employers see the benefit of the scheme and put in place for their employees.
The employers of labour affected by the Pension Act should be made to understand that it is in the interest of their organisations to comply with this provision on group life insurance.
To make the scheme a success, the insurance industry in entirety should support PenCom to enlighten the insuring public on the benefits of the compulsory insurance policy.
Government Should Set Up Social Security Fund To Cater For The Aged
Federal Government should set up a social security fund to cater for the aged, unemployed and disabled, bearing in mind that this forms part of the government's responsibilities.
This is taking into consideration the fact that government at all levels has a responsibility to provide to the aged, adequate living allowances to cover their sustenance.
The Social Security Fund being advocated for should be made to cover healthcare, welfare, shelter, free transport, and so on, for the aged, unemployed and disabled. In fact, at least 10 per cent of the federal and state budgetary allocations should be dedicated to this fund.
In the short run, Nigerians should demand on government to implement the spirit and letters of the new Pension Act to ensure that all categories of the working population have the capacity to contribute in the scheme.
FG, Legislators And Other Stakeholders Should Take Pension Seriously
The various stakeholders in the country's pension industry are advised to scrutinise the new contributory pension scheme with a view to making it more beneficial to the working population.
It has become imperative that the executive arm of government, National Assembly and various stakeholders jointly take a second look at some of the provisions in the Pension Act to give it a human face.
Being a form of investment to guarantee the workers' future, no one could afford to handle the issue of pension with levity, as the matter deserved maximum seriousness on the part of the government, private employers and the employees themselves.
PFAs Should Forge Partnership With Banks
The licensed Pension Fund Administrators (PFAs) in the country are encouraged to give favourable consideration to banassurance so as to improve on their fortunes in the market.
It is believed that such strategic alliance would be beneficial to the PFAs that are registered to operate in the country.
'Bancassurance' in French means the selling of insurance products by banks through their own distribution channels. It is the selling of insurance and banking products through the same channel, most commonly through bank branches selling insurance. The sales synergies available have been sufficient to be used to justify mergers and acquisitions.
Some of the sales synergies come through the extensive customer base that banks have. Some come from opportunities to sell insurance together with some banking products. For example, banks generally insist on life insurance for mortgage borrowers. Although borrowers are not obliged to buy insurance from the lender, many do it, as it is an easy option.
Bancassurance would be advantageous to the PFAs most likely under the strategic alliance model where the banks allow 'marketing tie-up' for the use of their distribution network.
Bancassurance model viewed in the context of collaboration between banks and other financial institutions, especially PFAs and insurance companies is a long- term value creation and maximisation initiative to be fully explored.
PenCom Should Encourage All State Governments To Embrace The Pension Scheme
National Pension Commission should further plead with states in the country that are yet to adopt the contributory pension scheme to do so for the benefits of their employees. This is because observations show that few state governments have adopted the contributory pension scheme. Those states that are yet to adopt the system should be urged to do so as soon as possible for the benefit of employees.
It has been argued that the new pension scheme would only enjoy smooth sail if the states across the country align with the scheme.
As the Pension Act did not cover the state and local governments, there is need for state governments to embrace the pension scheme by first of all enacting the necessary statutory requirements and also stipulating the guidelines for the smooth operation of the scheme in their various domains.
PFAs Should Diversify Investment Portfolio
To ensure the success of the contributory pension scheme in the country, Pension Fund Administrators should always give due consideration to the diversification of their investment portfolio. Portfolio is a group of financial assets such as stocks, bonds and cash equivalents.
Throughout the entire portfolio construction process, it is vital that you remember to maintain your diversification above all else. It is not enough simply to own securities from each asset class, you must also diversify within each class.
The pension managers should ensure that their holdings within a given asset class are spread across an array of subclasses and industry sectors. Overall, it must be noted that a well-diversified portfolio is the PFAs' best bet for consistent long-term growth of their investments. Such a strategy protects pension assets from the risks of large declines and structural changes in the economy over time.
Conclusion
As pointed out earlier, the operators in the private sector should be enjoined to comply with the provisions of the Pension Act by joining the contributory pension scheme currently in operation in the country.
The private sector operators need to realise that they would be contributing to support their workers while also assisting their own organisations.
The private sector operators have to re-orientate themselves to the fact that they have to sacrifice to the benefit of their workers, which was not so in the past.
Employers of labour should bear it in mind that their workers are actually using their youth to grow the business for them. As such, the employers must desist from the habit of using workers and dumping them at the critical time when they are no longer useful to themselves without any provision for old age.
Again, Federal Government should do a review of the subsisting Pension Act to give the operators a leeway to reach for greater height.
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